Up to $1.33 billion in fines

By Marshall Allen (contact)

Wednesday, Jan. 30, 2008 | 2 a.m.

The company that’s poised to take over the Las Vegas health insurance market is facing as much as $1.33 billion in fines in California for more than 130,000 alleged claims-handling violations.

Officials at UnitedHealth Group, which may soon be the dominant health insurer in Nevada, said they are addressing the litany of problems uncovered in an examination of its PacifiCare companies by California’s Insurance Department and Managed Health Care Department. The alleged violations by PacifiCare, which was acquired by United in 2005, include:

• Wrongful denial of covered claims.

• Incorrect claims payments.

• Lost medical records.

• Multiple requests for documentation that was already provided.

“PacifiCare allegedly made large-scale and willful decisions to use broken systems to process claims and respond to providers, while continually and effectively collecting premiums,” California officials said in a statement.

United, which has received a string of regulatory fines in other states, covers about 70 million Americans, making it the nation’s largest health insurer. The company announced in March its proposed takeover of Nevada’s largest health insurer, Sierra Health Services, which insures about 630,000 people.

The $2.6 billion merger would give market dominance to United and would make Las Vegas one of the most concentrated health insurance markets in America. The transaction is being investigated by the U.S. Justice Department because of antitrust concerns, but could be approved any day.

Tyler Mason, spokesman for United, said PacifiCare’s problems in California have nothing to do with United’s potential stake in Nevada. PacifiCare was not equipped to run some of its operations in California, he said. But in Nevada, Sierra will remain in control, Mason said.

“The Sierra systems, the Sierra platforms, the physician groups, that is not changing,” Mason said. “The leadership is not changing.”

Peter O’Neill, spokesman for Sierra, said that after the merger there will be no changes to existing claims and customer service operations.

Jason Kimbrough, spokesman for the California Insurance Department, said “Nevadans have cause for concern” when dealing with United.

“We look at this wholeheartedly as a UnitedHealth Group and PacifiCare issue,” Kimbrough said.

In 2005, when the California department approved United’s merger with PacifiCare, clear guidelines and standards were set for the new company’s operations, Kimbrough said. But they were apparently not met, even though regulators worked with PacifiCare for almost two years. United and PacifiCare either could not or would not address their claims-handling problems, Kimbrough said.

“They seemed to collect their premiums just fine,” he added.

Critics of the merger in Nevada are concerned that United, which they say is profit-hungry, will control so much of the market that the company will drive down reimbursements for doctors and hospitals while raising premiums for consumers. The coalition of critics includes Clark County officials, who are alarmed about the potential effects of the merger on University Medical Center, as well as the Nevada State Medical Association and the Clark County Medical Society, which represent doctors, and the Service Employees International Union Nevada. They have hired a Washington, D.C., antitrust attorney, David Balto, to lobby for their concerns with the Justice Department and the Nevada attorney general’s office — which could impose conditions on the deal — and to try to negotiate with United.

Balto said the fines in California should compel Nevada Attorney General Catherine Cortez Masto — whose mandate includes consumer and antitrust protection — to impose conditions for payment and claims processing on the merger before it’s approved.

“The attorney general has broad and comprehensive powers under the law to prevent these practices as part of her power to approve the merger,” Balto said.

United’s maximum fine could be $1.33 billion, but only if it is found that its violations were willful. If the violations were not willful, the fine would be reduced to about $650 million, and the final sum could be lower. No matter how it ends up, the fine will likely be the largest in the history of California’s Insurance Department.